TP adjustment set aside; matter remitted to AO/TPO as assessee failed to prove ALP-onus on assessee (sec 92C)

ITAT (Mumbai) set aside the TP adjustment and remitted the matter to the AO/TPO, finding the assessee failed to prove arm's length nature of intra-group marketing services by not satisfying need, benefit, rendition and non-duplication tests. The Tribunal rejected the application of a proportionate sales percentage based on comparables, noted mischaracterisation of the assessee as a distributor rather than a manufacturer, and observed that documentary evidence was inadequately examined. The onus is on the assessee to substantiate arm's-length pricing; the TPO is directed to re-examine and determine ALP per law upon fresh submissions.

---

---

Issues Involved:

1. Adjustment of Arm's Length Price (ALP) of reimbursement of expenses for marketing support services and IT support services.
2. Determination of ALP of intra-group services.
3. Disallowance of capital expenditure.

Summary:

Issue 1: Adjustment of ALP of Reimbursement of Expenses

The assessee, engaged in manufacturing switchboard power supplies and other computer peripherals, contested the adjustment of Arm's Length Price (ALP) of reimbursement of expenses upheld by the CIT (A) of Rs. 53,744,032 on account of marketing support services and Rs. 8,431,645 on account of IT support services. The Transfer Pricing Officer (TPO) noted discrepancies in the allocation of corporate expenses and determined the ALP of these expenses significantly lower than claimed by the assessee, leading to a proposed adjustment.

Issue 2: Determination of ALP of Intra-Group Services

The TPO determined the ALP of intra-group services at Rs. 83,05,750 out of the total claimed Rs. 9,84,57,908, leading to an adjustment of Rs. 9,01,52,158. The CIT (A) upheld this adjustment, noting the absence of an agreement for a part of the financial year and the failure of the assessee to provide complete documentation proving the receipt of services. The ITAT remanded the issue back to the TPO, directing the assessee to substantiate the ALP of intra-group services by demonstrating the need, benefit, rendition, and non-duplication of services.

Issue 3: Disallowance of Capital Expenditure

The CIT (A) confirmed the disallowance of Rs. 12,60,000 as capital expenditure, following the decision of the Hon'ble Supreme Court in the case of Brooke Bond India Limited Vs. CIT. The ITAT upheld this disallowance.

Conclusion:

The ITAT remanded the primary issue of ALP adjustment for intra-group services back to the TPO for re-examination, directing the assessee to provide detailed documentation supporting the ALP. The appeals were allowed for statistical purposes, with the ITAT emphasizing the need for the assessee to demonstrate the arm's length nature of the international transactions.

---